The South Caucasus region comprises the countries of Armenia, Georgia and Azerbaijan. The region is bordered by the Black Sea to the west, the Caspian Sea to the east, the Caucasus Mountains and Russia to the north, and Turkey and Iran to the south (Figure 7.1). The three countries have a total population of about 16 million, with Azerbaijan comprising almost 50 per cent of the total (Table 7.1). The three countries gained their independence from the Union of Soviet Socialist Republics (USSR) in 1991. After the USSR was dismantled, industrial production, which was very well established in the 1970s and 1980s, sharply declined in the region because of the energy crisis and the dissolution of eco-

nomic ties among the former Soviet Republics. Gross Domestic Product (GDP) has decreased roughly by 50 per cent since 1991, poverty levels have reached 60 per cent, and unemployment has skyrocketed (SIDA 2002). Even though all three countries have shown strong macroeconomic recovery and growth in the 2000s and substantial poverty reduction, there has been emigration from the region to Russia, Turkey, the Persian Gulf and the West (SIDA 2002). On top of these problems, after the Soviet Union’s dissolution, the region was faced with environmental degradation stemming from agriculture and industry from Soviet area. In this chapter we focus on problems of inter-state cooperation and conflict around a transboundary water basin, namely the Kura-Araks. This river basin, in which the name Araks is sometimes spelled as ‘Aras’ or ‘Arax’, comprises the major river system in the South Caucasus. Both rivers originate in Turkey and flow into the Caspian Sea after joining in Azerbaijan. Of the total basin area of about 188,200 km2, almost two-thirds, or about 122,200 km2, are in the aforementioned countries; the remaining basin area is in Turkey and Iran. The KuraAraks is one of the ‘new’ transboundary river systems of the former ‘Second World’ whose problems are largely terra incognita (van Harten 2002). The water users in all three countries are faced with water quality and distribution problems. In general terms, Georgia has an oversupply of water, Armenia has some shortages which are partly caused by poor management, and Azerbaijan has a lack of water (TACIS 2003). The main use of Kura-Araks water in Georgia is agriculture, and in Armenia it is agriculture and industry. In Azerbaijan, the Kura-Araks water is the primary source of fresh water, and is used for drinking water. Almost 80 per cent of the countries’ wastewater loads are discharged into the surface waters of the Kura-Araks Basin (UNECE 2003). The basin is excessively polluted due to a lack of treatment for urban wastewater and agricultural return flows, pesticides such as DDT that are used in Azerbaijan, and the recent resurgence of chemical and metallurgical industries in Georgia and Armenia (TACIS 2002).